Energy Exports To Keep T&T's Current Account In Surplus

We at Fitch Solutions forecast that Trinidad and Tobago’s (T&T) current account surplus will widen in 2019 due to an expanded traded goods surplus.

Growing liquefied natural gas production will bolster export growth over the coming quarters.

However, our view that T&T’s overall external position will remain under significant pressure is unchanged, with capital outflows forcing the Central Bank of Trinidad and Tobago (CBTT) to further draw down reserves.

At Fitch Solutions, we have downwardly revised our current account forecast for 2018 from a surplus of 14.1% of GDP to 4.5% and for 2019 from 15.6% to 8.9%, following significant data revisions by the CBTT. The revised data shows much narrower current account surpluses between Q317-Q218 (see below). During these periods, T&T’s traded goods surplus, the key driver of T&T’s current account balanced, was significantly smaller than previously reported. As a result, we have pared back our current account forecast for 2019 and 2020.

Current Account Surplus Will Remain Smaller Than Expected

Trinidad & Tobago - Current Account Surplus, USDmn

Source: CBTT, Fitch Solutions

Expanding energy production will support the traded goods surplus over the coming quarters. We forecast that T&T’s goods trade surplus will swell to 15.5% of GDP in 2019 and 19.6% in 2020, up from 14.6% in 2018, on the strength of energy production growth. Energy products were 52.3% of exports in 2017, and with the large Angelin and Dragon gas fields coming on line in 2019 and 2020, respectively, export growth will continue to underpin the strength of the current account. T&T’s exports will also benefit from the US-China trade dispute. Part of China’s retaliatory package is a 10% tariff on US natural gas exports, which has redirected some demand to T&T.

Trade Surplus To Expand

Trinidad & Tobago - Current Account Balance, USDmn

Source: CBTT, Fitch Solutions

Risks to T&T’s current account surplus are weighted to the downside. Slowing growth in China and the US, which represented 36.7% of T&T’s exports in 2017, is set to cap demand for T&T’s exports in 2019 (see ‘February 2019: Damage Control – Looser Policy Shift Ahead’, February 18). However, the risk for a more dramatic slowdown, or even contraction, among T&T’s major trading partners threatens T&T’s trade surplus and therefore current account surplus. Moreover, political upheaval in Venezuela has put the Dragon gas field, owned by Venezuela’s state-run oil and gas company PdVSA, into jeopardy. Venezuela’s opposition leaders have warned that treaties between the two countries not passed by the opposition-controlled National Assembly may not be honoured, risking an important expected driver of energy export growth over the coming years.

Capital outflows will ease over the near term, but remain a potential source of instability. T&T’s current account surplus has been outweighed by significant capital outflows, leading to an overall external account deficit that the CBTT has covered by drawing down foreign reserves. After posting an overall shortfall of USD548.0mn in H118, outflows slowed to USD202.6mn in H218. Given that outflows are due primarily to T&T’s weak business environment and negative interest rate differential with the US, T&T’s rebounding economy in 2019 and the US Federal Reserve’s shift to a more dovish posture will likely slow the pace of outflows further. As a result, we have revised up our end-2019 forecast for T&T’s foreign reserves from USD 6.8bn to USD7.0bn. However, the marked downward trajectory of reserves will raise concerns over the sustainability of T&T’s pegged exchange rate (see “TTD: Near Term Hold But Long-Term Downside Risks’, February 4).